The cost of sea freight from Asia to the US – the average spot-market price to ship a 40-foot container – has seen a sharp 34% increase in just a fortnight. This is as container lines look to offset rate-drops in anticipation of the US importing season which typically reaches its annual peak in the autumn.
Norwegian transport data firm quotes the average price as $1,659, but as the Wall Street Journal reports, this is still way below the average price of $9,203 from just a year ago and says that it suggests “a rapid decline in pricing that began midway through 2022 as supply-chain snarls eased and retailers reined back restocking efforts may have bottomed out.”
General rate increases of around $600 per container began to be introduced in early July by several ocean carriers on trans-Pacific routes. Commentators suggest that this shows that customers are now willing to pay higher rates on the spot market.
Another factor is that many companies have delayed signing shipping contracts for later this year as uncertainty remains over economic conditions – and the prospect of a continued decline in rates.
So far, this year has seen a depression in overall shipping demand. This is mainly due to the attempts of manufacturers and retailers to pare back inventory levels after the overstocking issues of early 2022.
A sharp decline in cargo volumes has been reported by many ports and trucking companies in the US. In general, freight companies are being more cautious about the chances of rebound in the final two quarters of 2023. The US economy continues to struggle due to a toxic mix of rising interest rates and stubbornly high inflation.
Major players such as Walmart now move most of their international freight under longer-term contracts. While the price of such contracts tends to be set higher than typical spot-marked levels, the advantage is that space is guaranteed on containers.
Therefore, it tends to be the smaller importers who have contracts with third-party freight forwarders, or that rely on the spot market.
The legacy of freight and shipping costs and delays
The pandemic saw a sharp increase in logistics costs, and this was a major contributor to inflation during the period. However, since the spring 2022, ocean freight prices have consistently come down. Indeed, the rates on the China-Pacific Coast US route recently returned to pre-pandemic levels. Imported container volumes fell through November 2022 and congestion eased – especially at the crucial LA/Long Beach hub – and in late November, congestion returned to normal levels. Data provided by Freightos shows that shipping rates from Asia to the US West Coast fell by as much as 80% since the end of April. Prices to the East Coast fell by nearly two-thirds. A major driver in the fall in logistics costs is the reduction in consumer spending. This had boosted sales among many importers over the last two years.
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